After Earnings, Is Adobe Stock a Buy, a Sell, or Fairly Valued?

Adobe released its fiscal second-quarter earnings report on June 11. Here’s Morningstar’s take on Adobe’s earnings and stock.

Key Morningstar Metrics for Adobe

• Fair Value Estimate
  : $380.00
• Morningstar Rating
  : ★★★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

What We Thought of Adobe’s Fiscal Q2 Earnings

Adobe’s second-quarter revenue grew by 12.7% year over year to $6.62 billion, while non-GAAP (generally accepted accounting principles) operating margin was 44.5%. Revenue was better than expected, while non-GAAP operating margin was in line with guidance. The annual outlook was generally increased, with some offsets.

Why it matters: Results and guidance are distorted by the Semrush acquisition, which closed on April 28 and added $40 million to revenue in the quarter and $280 million to the revenue outlook for the year. An extension of the freemium model offset good results and Semrush.

• Capturing more freemium users makes strategic sense, but it counterbalances what should have been several hundred million in new annual recurring revenue from planned pricing actions. The expanded freemium program largely offsets the increase in ARR from the addition of Semrush.
• Adobe also announced CFO Dan Durn was leaving to become the CFO of Marvell, returning to his semiconductor roots. The timing of this could not be much worse, as it immediately follows Adobe’s ongoing CEO transition. During the artificial intelligence transformation, the firm is replacing both its CEO and CFO.

The bottom line: We keep our $380 fair value estimate for narrow-moat Adobe and view shares as attractively valued for patient and risk-tolerant investors. While we made minor adjustments to reflect near-term guidance, our long-term assumptions remain relatively steady.

• We recognize the sentiment around software, but we see no signs of the bear case unfolding for the industry in terms of AI disruption. Quarterly performance continues to underscore this notion. Still, heightened uncertainty from the AI threat drove our March moat rating downgrade.

Coming up: Third-quarter guidance was ahead of our expectations, including sales of $6.67 billion-$6.72 billion and a non-GAAP operating margin of 44%. Adobe raised its full-year outlook for revenue and non-GAAP EPS, while holding non-GAAP operating margin and ARR growth steady.

Fair Value Estimate for Adobe

With its 5-star rating, we believe Adobe’s stock is significantly undervalued compared with our long-term fair value estimate of $380 per share. Our estimate implies a fiscal 2026 enterprise value/sales multiple of 6 times and an adjusted P/E multiple of 16 times.

We model a five-year revenue compound annual growth rate of approximately 9%. We anticipate modestly decelerating growth in both the creative and customer experience sides. Continued innovation, gathering new users, and upselling existing users in Creative Cloud should help drive strong growth for the next several years.

Read more about Adobe’s fair value estimate.

Economic Moat Rating

For Adobe overall, we assign a narrow economic moat, arising from switching costs. We believe Adobe’s moat will more likely than not allow the company to earn returns in excess of its cost of capital over the next 10 years. Given the unknowns surrounding the impact AI will have on many software companies, we think it is inappropriate to assign a “near certainty” level of confidence to the return profile. We believe both its digital media and digital experience segments enjoy a narrow moat based on switching costs. We think Creative Cloud historically enjoyed a wide moat, but with competitors like Figma and Canva, coupled with the rise of generative AI, it has eroded to a narrow one.

Read more about Adobe’s economic moat.

Financial Strength

We believe Adobe enjoys excellent financial strength, arising from its strong balance sheet, growing revenue, and high and expanding margins. As of November 2025, Adobe had $6.6 billion in cash and equivalents, offset by $6.3 billion in debt, resulting in a net cash position of $300 million. Adobe has historically generated strong operating margins. Free cash flow generation was $9.9 billion in fiscal 2025, representing a free cash flow margin of 41%. We believe that margins should continue to grind higher over time as the digital experience segment scales.

Read more about Adobe’s financial strength.

Risk and Uncertainty

We assign Adobe an Uncertainty Rating of High. Its risks vary by segment. Creative Cloud’s dominant market share over the last 25 years means a significant portion of high-margin revenue is at risk, however small that risk may exist, if a competitor were to make inroads into the space. While Adobe is generally considered a leader in the categories under its digital experience umbrella, it did not create any of these categories and does not dominate them the way it does with Creative Cloud.

Adobe has built the digital experience business through acquisitions. The Magento and Marketo acquisitions pose risks, as those were on the larger side for the company. Any integration missteps could delay new contract signings. Further, material missteps could result in substantial write-downs regarding these (or other) acquisitions. While the margin structure may ultimately be lower in digital experience relative to Creative Cloud, the company has worked to improve margins over time, and we believe Adobe must continue to drive down costs and expand margins to meet investor expectations.

There is a general fear that AI will either obviate the need for Adobe’s software altogether or at least pressure the seat count in the firm’s subscription. While this fear spans most software subscription models, it seems to be especially acute for Adobe.

While we do not see significant environmental, social, and governance risks, Adobe does face strong competition to hire software engineers and also faces risks arising from a potential data breach in its data centers.

Read more about Adobe’s risk and uncertainty.

ADBE Bulls Say

• Adobe is the de facto standard in content creation software and PDF file editing—categories it created and still dominates.
• Adobe continues to introduce new solutions and features that defend its moat and drive innovation. Express has helped develop a funnel of new users, while Firefly is a capable new visual content generation tool.
• Adobe is extending its empire in the creative world from content creation to marketing services more broadly through the expansion of its digital experience segment. This segment should drive growth in the coming years.

ADBE Bears Say

• Competition has increased in recent years with the rise of Canva and Figma, weakening Adobe’s position.
• Digital experience is an emerging space and one that Adobe neither created nor dominates. Growth could be slower than we anticipate, or margin expansion may not materialize.
• Growth has slowed meaningfully with the rise of new competitors and generative AI. There is a fear that AI models can replace applications like Adobe’s or pressure the seat licensing model.

This article was compiled by Irza Waraich.